Google (GOOG), Microsoft (MSFT) & Apple (APPL) Still Dominate Hedge Fund And Mutual Fund Holdings

For the fourth-straight quarter, tech giant Google Inc (NASDAQ:GOOG) counted as the top holding among mutual funds, while big name rivals Apple Inc. (NASDAQ:AAPL), Priceline.com Inc (NASDAQ:PCLN) and Qualcomm, Inc. (NASDAQ:QCOM) battled Google for dominance among hedge funds.

The Citigroup Inc. (NYSE:C) analysis, from a recent research note, noted that Microsoft Corporation (NASDAQ:MSFT) was the second most popular stock among mutual funds. The data covers the 50 biggest active equity-based mutual and hedge funds and cover the third quarter of 2013.

Tech bellwether companies were the subject of much hype and holdings relative to their market capitalization, according to the analysis. “Google and Microsoft appeared over-represented at mutual and hedge funds, alongside Apple,” wrote the Citi analysts. “In contrast, over 12 of the largest 50 stocks in the S&P 500 by market cap failed to be represented at the mutual funds.”

The broader market, as measured by the S&P 500 stock index that tracks shares of large corporations, has continued to beat returns from hedge funds considered collectively, the report said. The S&P 500 beat the Hedge Fund Equity Index, with the former climbing 26 percent for the year to date, versus 9 percent rise among equity hedge funds broadly.

Some hedge funds are known for outsize returns, though much depends on monetary policy, hedge fund fees and their investments in other asset classes. Influential investor Warren Buffett famously bet $1 million with hedge fund manager Protégé Partners, that the U.S. stock market would show better returns than a certain stable of hedge funds, as the Wall Street Journal recounts. Since 2008 hedge funds broadly have underperformed the market, partly thanks to extraordinary monetary policy.

Credit card company Mastercard Inc (NYSE:MA) gained the most popularity the quickest, compared to the quarter before, according to the Citi analysis, gaining the most positions among mutual funds.

Both hedge and mutual funds gravitated strongly this quarter to companies in the “consumer discretionary” sector, which includes non-food retailers, media and fashion companies, as well as automobile firms. Materials and utilities were two unpopular sectors among both types of finance firms.

Notably, hedge funds may be showing more of a ‘herd mentality’ – mutual funds saw less consensus on stock names to hold, compared to recent quarters, while hedge funds showed a “consensus in top holdings and much greater concentration.”

“Following a somewhat unanticipated and powerful appreciation in equities over the first three quarters of the year, the stock market has continued its ascent in 4Q, though references to a stock market correction have risen in recent weeks as the S&P 500 broke record after record, ending November with its longest winning streak since 2004,” wrote the Citi analysts.

Figures so far hint “at the likelihood of yet another relative weak year for hedge funds.”